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Robbing Peter to pension off Paul

www.breakingviews.com

The conglomerate is almost extinct in many countries but in Germany it still thrives. Not only do widely diversified companies such as Siemens, Bayer and Henkel plod on, they also continue to fight off demands from investors for tighter business focus. ThyssenKrupp even plans to make itself yet more complex.

Why are the conglomerates so reluctant to simplify themselves? The conventional wisdom is that they are run by bone-headed empire builders and egoists. And some might well be. But Germany's pension problem might also have a hand in their survival.

Balance sheet nightmares

The German pension regime is uniquely difficult for corporate managers. The obligations to ex-employees are high and German law makes it hard to close plans or make them less generous. That's bad enough in young, high-growth companies, but in mature industrial companies it's a total nightmare. Because few German companies endowed external pension funds in the past, and fewer mature businesses have the wherewithal to do so now, they are forced to keep the liabilities on their balance sheets.

This is a hefty burden for mature businesses to bear. Pension liabilities are nine-tenths as large as shareholders' equity for Siemens (which does keep most of them off balance sheet).

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